Blog
23 october 2011, miles and miles
We have been klocking up the kilometres recently. Yesterday, we drove down to halton hall to meet my sister's family (coming up from london), although without my other half, who has gone to budapest (see this amazing photo) for a few days. And earlier this week, we had a much-needed few days in the scottish highlands. We drove up to crianlaroch, taking the train to fort william, where we spent the night, and saw snow for the first time this year, sitting nonchalantly on ben nevis. The next day was the major highlight of the gorgeous train to mallaig, now to be known forever as the harry potter train, due to the scene from the film, which was indeed breathtakingly gorgeous. We then hopped on the ferry to the isle of skye, where we spend a lovely couple of days driving round ever-more amazing scenery, before doing the whole thing in reverse, by which time ever peak was snow capped, and we also managed a lovely lunch by the fabled shores of loch lomond. It already seems like a month ago...
15 october 2011, not just yet
At the more sensible end of british think tanks on europe, the centre for european reform has maintained a cogent analysis of the euro crisis, which is essentially that its genesis lies in the inbuilt need for wages to fall for competitiveness to be maintained in one part of the eurozone vis a vis others, because the traditional way to do that, devaluation, is no longer an option. Over the euro's lifetime, germans have done precisely that, becoming both keenly competitive and also, because wages and consumer confidence have stagnated, avid savers, so depressing consumption. Being so competitive, exports boomed, great for germany, but bad for those uncompetitive areas sucking in imports, where wages and asset prices boomed instead, including through those infamous irish and spanish property bubbles. When all that ground to a halt in 2007, investors didn't know where to put their money, as suddenly debts in many countries looked unsustainable, whilst returns in the sensible ones remained as low as ever. Nothing the eu has done since has changed that essential outlook, which they argue is worsened by the (german-led) course towards more fiscal rectitude, which lowers further domestic demand. The centre's basic solution is that the only way out is growth, which I agree with, but I don't with their contention that the only way to achieve that is massive government borrowing, taking advantage of cheap money desperate to land. My problem is tectonic plates: somehow, at some point, we need to realise that it was debt that got us into this mess, and it will not be finding a reassuring way to get back to such levels of debt that will get us out. The time is never, ever, going to be right to deleverage: but here we are. In their latest publication, reaching the endgame, they've rather succumbed to the british club of pessimists, seeing the euro's first decade also as its last. A shame, as that's the easy, but wrong, analysis.
Attached File: 15 oct 2011.docx
13 october 2011, you spends your money
It is astounding what we actually spend our money on. This chart is a good bird's eye view of uk public spend, which many places, like westminster, manchester and cumbria have broken down further. It reveals that we spend most money first in people not in work, and second on people not in good health. If you add up every single penny spent annually on the three million or so people living in those places combined, on every single service, local and national, it is approximately a quarter of what the usa spent getting two men on the moon. And what did the moon dust, as brian might say, ever do for us ? Well, there's some nice photos and teflon-coated fibreglass, but value for money from a few spacesuits short of $500 billion ? Go figure.
7 october 2011, not yet at peace
It's kol nidrei (see the great jazz singer) tonight, and I'll be there, as slowly we integrate onto our community here. I'll be asking for peace, and so it's appropriate that it's also the day the most famous peace roll call is added to, as this year ellen johnson sirleaf, leymah gbowee and tawakkul karman are awarded the nobel peace prize. I do try in my own way to bring joy to those I know and a better basis of happiness to those I don't, but how can we but gasp at the laureates' incredible feats, as they show themselves ready to sacrifice their very lives, let alone wellbeing and happiness, for the vast good of millions of others. They rightly join aung san suu kyi, nelson mandela, mother theresa, martin luther king, mikhail gorbachev, the dalia lama, lech walensa, kofi annan and, er, barack obama (10 oct 2009) and al gore. I still love the story of why nobel founded the prize, having read his own obituary in a newspaper and realised he'd be remembered forever as the inventor of what was then the most destructive force known to man, dynamite. A rather better legacy, and a good exercise for us all.
4 october 2011, politicos in town
The conservative party conference is here, so as part of the manchester team I've been hobnobbing with the government of the day and their various hangers-on, to sample the atmosphere, listen to the ideas getting worked up, and most importantly do what we can to get what we want. Even the (labour party) leader of the council has a very pragmatic view, and popped up at a fringe event on the future of the tories in the north chaired by graham brady, whom I know from my ecb days when he came over twice as part of the treasury select committee to write run on the rock. Funnily enough, richard was the most optimistic person in the room, seeing the sharing of the spoils of the demise of the liberal democrats. The talk was all about how the party could not win an outright majority next time round without transforming the situation "up here", when the point was made that "it's not about how we need to do things for people up north so we can win the general election, but how we need to win the general election so we can do things for people up north". Yesterday I spoke, on a smith institute platform, at a good event where all the speakers pretty much rubbished a recent report on pumping money into the north and forming a new "northern council". I thought andrew lansley both confident and competent, on a stellar platform with mathew taylor and stephen bubb, and our very own tom bloxham did a good turn this morning, though bob neill and mark prisk were less impressive. It's hard to deny the excitement of such a major event on the doorstep, and good to bump into journalists and talking heads that I see on the screen every night. The freebies are good too, best so far is a politicos top trumps.
1 october 2011, the missing e
It's been a year since from what was then the deepest moment of euro crisis came agreement to go back to building the "e" of economic and monetary union that was dropped in 1992. Progress however has been extremely slow, and the supposed milestone now reached is hardly worth the paper it is written on. The ecb has got little for losing its virginity in lending a hand to fiscal policy. Even the minimal steps agreed show little has been learned from the stability and growth pact, with powers to be given to the commission to fine euro area member states that a majority of them can block. This is all just the slightest of steps in economic integration, with little of any real value (like the consolidated tax base, 19 march 2011) even on the agenda. At least though the 17 can be seen marching together, rather than waiting for the laggards, and indeed one by one the parliaments have agreed to establish the european financial stability facility; london is not being asked. As predicted (p38), this is something that the lisbon treaty facilitated. Events, as everyone notes, are very far ahead of any such plans though, and if more "e" is indeed the solution, then its nowhere yet even on the horizon.
24 september 2011, rabbits, headlights, action
Two things have created the precipice of economic meltdown we find ourselves overlooking. One is powder keg, the other is sparks. The keg is the huge global imbalances that built up in our years of plenty, when china and the emerging world were very happy to lend us an endless amount of money to buy their goods, as anyway they had little faith in their own governance to manage it. The first spark was three years ago, with the implosion of the american sub-prime market, which took every fiscal policy lever we had to stabilise. The second was greece, which became the whole euro area, as inept leadership allowed the problem to fester and grow enormously. It is clear to everyone that there is deep global uncertainty about what to do, with fundamental misgivings somewhere over any particular strong course of action, making for total stalemate as to be effective any policy at this point needs everyone to be strongly rowing the same boat. We stand like rabbits, frozen in the headlights of the oncoming recessionary juggernaut. The markets are intensely volatile, as they struggle to read the runes of every move and statement, and desperately cut their losses when things momentarily subside. Though the bigger eu rescue package agreed before the summer will surely now finally come into being, it already looks too little, too late; though expect some rabbit out the hat tricks to make the number much bigger. The ecb too must surely both chip in and also find some way, at least temporarily, of underwriting the big european banks, where, just as in 2008, the fear that they are sitting on massive potential bad debts (this time sovereign) is utterly undermining confidence. These are the sorts of measures that will need to be in place to create the ring of steel within which greek debt can finally be restructured properly, something the markets have long since priced in (although that need not at all mean leaving the euro, see no way out, 16 january 2010, nor should they want to, as they're not the uk in 1992. The hope must be that default by another name will finally lance the boil, amongst other things allowing the eu's monetary and fiscal sides, which have been fundamentally at odds over the issue throughout the crisis, to lace together their actions better, hopefully beginning to restore confidence. All this is unlikely to be enough to stop the slide into recession, nor will it alter the movement of tectonic plates between east and west that is really driving the crisis. However, it may at least mark the end of a particularly chaotic phase and enable some stability of sorts to be once again established, on which the foundations for moving forward can then be built.
19 september 2011, a time of plenty ?
At a private lunch today with robert chote, the charming and excellent poacher-turned-gamekeeper who now provides the authoritative analysis of the uk's public finances from his semi-autonomous seat as head of the office of budget responsibility. As a former economist at the imf (before his stellar stint at the ifs) we had much to talk about, taking on all comers talking of a euro collapse. Just as independent central banks spread in the 1990s, so now independent budget offices (like that of the us congress) now seem to be becoming international best practice, and for all the brickbats about having no teeth (which it doesn't), this new institution is shaping up well as a marginally important piece of the macroeconomic policymaking jigsaw. It's headline publication, the fiscal sustainability report, is a surprisingly easy read that broaches the important long-term issues beyond immediate policy, such as pensions, oil and healthcare. Their ultimate conclusion is delivered deadpan but bears reading twice, "on current policy we would expect the budget deficit to widen sufficiently over the long-term to put public sector net debt on a continuously rising trajectory as a share of national income. This is clearly unsustainable." Both long-term then, and short (according to today's financial times), we may yet look back at today as a time of plenty rather than the opposite.
14 september 2011, build them and it might come
Nick clegg (5 february 2011), who I had the pleasure of debating with at close quarters a few months ago, tried to make a landmark speech this morning, on the theme of the moment, growth. Henry overmans was not impressed, being rather sniffy about the value of one of the main drivers the deputy prime minister identified, infrastructure. In fact, the literature is rather more ambivalent, or even supportive, provided of course its the right infrastructure, in the right place, which tends very much towards where an economy is growing already and where there is potential for more. Aschauer, gramlich, the british treasury, lau and munnell may all argue about the exact quantification of the multiplier effects of infrastructure investment, but it is clear that in the right circumstances, the effect is a positive one, with significant returns and increased output. It's an important point, as there does seem rather little a little place can do in the face of the current economic squalls, but building for the long-term does evidently seem something.
11 september 2011, where were you...
For the last generation, it was when kennedy was shot; for us it's 9/11. I was interviewing for my job at the european central bank in frankfurt. As I walked into the office of my future boss, his secretary was bouncing up and down, saying that a plane had crashed into the world trade centre. I thought her slightly eccentric. When I came out half an hour later, she was semi-hysterical, saying another plane had crashed into the world trade centre. I said my goodbyes and that I hoped I'd see her again. When my taxi arrived at the airport I still had no inkling, and even when a huge slew of planes were showing up delayed or cancelled, it took a while. There were televisions dotted around though, and each had crowds in front of them, so that was the clue. Fighting my way to a payphone, I called my other half, who was sat in london with our then 3-week old child, blissfully unaware of everything; amazing how slow news travelled before proper mobile phones. I told her to turn on the tv and she asked me what film it was. When she got her head around it, she thought it was the start of the third world war. It was the thirtieth birthday of one of my friends, and last night was her 40th party, so that's where we were reminiscing, me having spent the morning accompanying that 3-week old to his first secondary school entrance exam, which was even more scary than 9/11. It was also my own birthday: 21 again, in my mind anyway, which is what counts, or so I tell myself.